PC and Monopoly

Perfect competition characteristics

-there are many small firms

-each of the firms in the industry produces a homogenous (identical) product

-there are no barriers to entry or exit

-each firm is a price taker (no control over price)

-no control over quantity sold

-there are a large number of buyers who are also unable to individually influence the market price

Monopoly characteristics

-there is only one producer in the market

-they sell a single product with no close substitutes

-they are price makers (control over price)

-there are very strong barriers to entry

-no competition

TR

PxQ

AR

TR/Q

MR

TR2-TR1

Supernormal profit

Where total revenue is greater than total economic costs. This is a level of profit above what is necessary to keep a firm in the industry. Supernormal profits will attract other firms into the industry to take advantage of the high level of profit in the long run.

Subnormal profit

Where total economic costs are greater than total revenue. This is a level of profit below what is necessary to keep a firm in the industry. The firm will exit the industry in the long run.

Normal profit

Where total economic costs are equal to the total revenue. This is a level of profit just sufficient to keep a firm in the industry in the long run.